Hicklin v. Onyx Acceptance Corp.

• Decision Date: 27 March 2009
• Docket Number: No. 317, 2008.,317, 2008.
• Citation: Hicklin v. Onyx Acceptance Corp., 970 A.2d 244 (Del. 2009)
• Parties: Shannon P. HICKLIN, Defendant Below, Appellant, v. ONYX ACCEPTANCE CORP., Plaintiff Below, Appellee.
• Court: Supreme Court of Delaware

970 A.2d 244

Shannon P. HICKLIN, Defendant Below, Appellant, v. ONYX ACCEPTANCE CORP., Plaintiff Below, Appellee.

No. 317, 2008.

Supreme Court of Delaware.

Submitted: January 14, 2009.

Decided: March 27, 2009.

Reargument Denied: April 22, 2009.

Court Below: Superior Court of the State of Delaware in and for New Castle County, C.A. No. 07A-09-004.

Upon appeal from Superior Court.

AFFIRMED IN PART, REVERSED IN PART

and

REMANDED.

Douglas A. Shachtman, Esquire, Douglas A. Shachtman & Associates, Wilmington, for Appellant.

Jeffrey P. Wasserman and Daniel C. Kerrick (argued), Esquires, of Ciconte, Wasserman & Scerba, LLC, Wilmington, for Appellee.

Before STEELE, Chief Justice, BERGER and JACOBS, Justices.

JACOBS, Justice:

Shannon P. Hicklin, the defendant below, appeals from a Superior Court order affirming a deficiency judgment of the Court of Common Pleas arising from the repossession and sale of a car financed by the plaintiff below, Onyx Acceptance Corporation ("Onyx"). On appeal, Hicklin argues that the Superior Court erroneously upheld the judgment of the Court of Common Pleas, because the trial court: (1) applied an incorrect standard in determining the commercial reasonableness of a sale after repossession, and (2) improperly admitted hearsay evidence. Hicklin also claims statutory damages for Onyx's alleged violation of the Delaware Uniform Commercial Code ("UCC"). We conclude that the trial court erroneously applied the UCC commercial reasonableness standard, that the trial court did not abuse its discretion in admitting hearsay evidence, and that Hicklin is not entitled to statutory damages. We therefore affirm in part and reverse in part the Superior Court order affirming the judgment of the Court of Common Pleas.

FACTUAL AND PROCEDURAL BACKGROUND¹

On July 6, 2000, Hicklin purchased a 1993 Ford Explorer (the "car") under an installment sales contract. Payments under that contract were assigned to Onyx. Hicklin fell behind on her payments, and on February 11, 2004, Onyx repossessed the car. At that time, Hicklin was three payments past due and owed $5,741.65 under the contract.

The car, when repossessed, had minor defects—including a cracked windshield, dings, scratches, and a "check engine" message—that would cost an estimated $1,365 to repair. Those defects were never repaired. According to the Kelley Blue Book, the average wholesale price of a 1993 Ford Explorer at that time was $3,700.²

The repossessed car was driven to Dulles, Virginia and sold for $1,500 at a private auction operated by ABC Washington-Dulles, LLC ("ABC"). After deducting the sale proceeds from the costs of repossession and sale and the contract balance, there remained a deficiency of $5,018.88. Onyx sued Hicklin in the Court of Common Pleas to collect that deficiency. Hicklin denied liability and counterclaimed for statutory damages under 6 Del. C. § 9-625(c), on the ground that Onyx had failed to sell the car in a commercially reasonable manner as the UCC required.

Onyx's only witness at trial was Cesar Jimenez, an employee who worked in Onyx's Philadelphia office. Onyx is headquartered and maintains its records in California. Jimenez had worked for Onyx for 10 years, during which time he underwrote loans, made credit decisions, collected delinquent accounts and assigned delinquent accounts for repossession. At trial, Jimenez testified that Onyx sells its repossessed cars at private auction, because private auctions result in higher sale prices. Jimenez also authenticated several documents, including the repossession notice and reports describing the condition of Hicklin's repossessed car.

The Court of Common Pleas found that the fair market value of the car at the time of the sale was $2,335, using the higher of the two disputed mileage figures to determine the wholesale value, and then subtracting the repair costs. The court held that because the $1,500 auction price was greater than 50% of the car's adjudicated value, the sale was commercially reasonable. Consequently, the trial court ruled, Hicklin remained liable for Onyx's deficiency and was not entitled to statutory damages.

Hicklin timely appealed that judgment to the Superior Court. Hicklin claimed that the trial court had erroneously applied the common law "shock the conscience," rather than the UCC commercial reasonableness, standard. Hicklin also argued that the trial court misapplied the "business records exception" of D.R.E. 803(6), when admitting into evidence various documents offered by Onyx. Specifically, Hicklin claims that the trial court erroneously credited the authentication of those documents by Jimenez, who was not their custodian. Rejecting these arguments, the Superior Court held that the trial court had not relied solely on the 50% "shock the conscience" test, but also had considered Jimenez's testimony, the documentary evidence, and the inaccurate odometer reading, to conclude that the sale was commercially reasonable. On that basis, the Superior Court affirmed the judgment of the Court of Common Pleas. This appeal followed.

ANALYSIS

I.

On appeal from the Court of Common Pleas to the Superior Court, the standard of review is whether there is legal error, whether the trial court's factual findings are sufficiently supported by the record, and whether those findings are the product of an orderly and logical reasoning process.³ Factual findings of the Court of Common Pleas that are supported by the record will be upheld even if, acting independently, the Superior Court would have reached a contrary result.⁴ On further appeal to this Court we apply the same standard⁵ in reviewing independently the underlying decision of the Court of Common Pleas.⁶

Applying a presumption that repossession sales that recover over 50% of a vehicle's value are commercially reasonable, the trial court granted Onyx a deficiency judgment. On appeal, Hicklin claims that (1) the trial court erred in applying the common law "shock the conscience" test rather than the UCC "commercial reasonableness" test, and that (2) Onyx failed to meet its burden of proving a commercially reasonable disposition of the collateral. Hicklin urges that Onyx did not establish that the auction was commercially reasonable, because Onyx failed to: (a) introduce evidence of the prevailing practice in disposing of repossessed automobiles, or (b) show that the time, place and manner of the sale were commercially reasonable.

Onyx responds that the trial court properly applied the commercial reasonableness test, and that Onyx adequately proved that it had sold the car in a commercially reasonable manner. Onyx contends that the commercial reasonableness test is flexible and permits a secured creditor, acting in good faith, to exercise business judgment and flexibility in deciding how to dispose of collateral. Onyx further argues that it was not required to introduce evidence of the prevailing trade practice in disposing of repossessed automobiles, and that even without such evidence, it established that the time, place, and manner of the sale were commercially reasonable.

This appeal raises two issues. The first is what is a commercially reasonable disposition under the UCC, and how may a party prove commercial reasonableness. The second is what consequence flows from a secured party's failure to establish a commercially reasonable disposition of collateral. For the reasons next discussed, we conclude that: (1) the trial court applied an erroneous commercial reasonableness standard, (2) Onyx failed to adduce sufficient evidence to establish a commercially reasonable sale of Hicklin's car, (3) Onyx's failure to establish commercial reasonableness bars it from recovering any deficiency, (4) the trial court did not err in admitting certain documents into evidence, and that (5) Hicklin is not entitled to statutory damages.

II. The Courts Below Applied An Erroneous Commercial Reasonableness Standard

Because this dispute concerns a security interest in personal property, it is governed by Article 9 of the UCC.⁷ Section 9-610 of the UCC (6 Del. C. § 9-610) states the general rule governing the disposition of collateral:

(a) After default, a secured party may . . . dispose of . . . the collateral in its present condition or following any commercially reasonable preparation. . . .

(b) Every aspect of a disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable. . . .

The UCC does not specifically define the term "commercially reasonable."⁸ Whether or not a secured party's disposition of collateral action was commercially reasonable must be considered on a case by case basis. Comment 2 to 6 Del. C. § 9-610 states that "[s]ection 9-627 provides guidance for determining the circumstances under which a disposition is `commercially reasonable.'" Sections 9-627(b) and (c), in turn, provide the following "safe harbors" that are deemed to establish conclusively that a secured party acted in a commercially reasonable manner under Section 9-610:

(b) A disposition of collateral is made in a commercially reasonable manner if the disposition is made:

(1) in the usual manner on any recognized market;

(2) at the current price in any recognized market at the time of disposition; or

(3) otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition.

(c) A . . . disposition . . . is commercially reasonable if it has been approved:

(1) in a judicial proceeding;

(2) by a bona fide creditors' committee;

(3) by a representative of creditors; or

(4) by an assignee for the benefit of creditors.

Our prior case law has articulated a standard substantially similar to the one established by Section 9-627(b)(3):

To be commercially reasonable the actions must be "in keeping with prevailing trade practice among reputable and responsible business and commercial enterprises...